A major Wall Street strategist has made headlines with calculations indicating that the total value of U.S. stocks has soared to an astonishing 363% of GDP, surpassing the notorious 212% threshold that characterized the dotcom bubble. This dramatic rise has raised alarms among analysts and investors alike, as concerns mount over its sustainability. David Kelly, the chief global strategist at JP Morgan Asset Management, described the current bull market as exceptional, with its momentum extending sporadically back to the 1980s.
The relentless ascent of stock prices, fueled prominently by fervent enthusiasm surrounding artificial intelligence and a handful of dominant tech stocks, has sparked vigorous discussions regarding the potential for another historic bubble. The S&P 500, in particular, has reached some of the highest valuations seen on record. Recent reports highlight that the index hit a record closing level of 6,501 in August, resulting in a trailing price-to-earnings (P/E) ratio of 30x based on actual GAAP earnings. This level of valuation has been rare, reminiscent of only a few distinct periods in market history, such as the tech craze from 1999 to 2002. For perspective, investors were receiving $5 of earnings for every $100 invested as recently as 2022; today, that figure has dropped to merely $3. The striking reality is that earnings growth has scarcely matched inflation, indicating that the climb in stock prices has primarily stemmed from inflated P/E multiples rather than genuine corporate profit expansion.
In his recent analyst note titled “Checking the Foundations of a Roaring Bull Market,” Kelly underscored that prior to this formidable rally, the aggregate value of U.S. equities historically averaged about 72% of GDP from 1955 to 1985. He indicated that the market’s impressive gains in recent decades have mostly derived not from economic growth but rather from an increasing profit share of GDP and higher P/E ratios. Kelly contended that the “scaffolding supporting this roaring bull market” appears increasingly unstable and potentially unsustainable.
These concerns align with various commentators’ observations regarding the “financialization” of the U.S. economy, a trend that has intensified since the 1980s. The phenomenon has resulted in market dynamics becoming disconnected from fundamental economic realities. Many remember the cinematic portrayal of the era in Oliver Stone’s classic “Wall Street,” famously encapsulated by the line, “Greed is Good,” which resonates with the ongoing debate surrounding the role of speculation in today’s market.
AI and technology have become focal points within this evaluation frenzy. Recent developments, such as the launch of GPT-5, have not met the exaggerated expectations set forth, contributing to apprehension in the tech sector and prompting a notable $1 trillion sell-off in the S&P 500 over the summer. Critics, like veteran AI expert Gary Marcus, emphasize that the industry faces a staggering 95% failure rate in generative AI projects, reflecting a market psychology reminiscent of past manias where enthusiasm outpaced reality. Some economists caution that today’s leading firms, particularly in the AI sphere, showcase valuations even more detached from fundamental performance than companies during the dotcom boom.
Investments in data centers—crucial for AI infrastructure—have skyrocketed, contributing equally to GDP growth alongside consumer spending. However, skepticism remains regarding whether such commitments can yield immediate financial returns. AI unicorn valuations have swelled to $2.7 trillion, despite the absence of widespread revenue and profits, intensifying fears about the longevity of this market uptick.
At a recent press briefing, Federal Reserve Chair Jerome Powell remarked on the “unusually large amounts of economic activity” stemming from the development of AI-related infrastructures, specifically data centers. The most striking P/E multiples are observed in the technology sector, predominantly among the AI stalwarts, exemplified by Nvidia, the world’s most valuable company.
However, this meteoric rise in stock prices occurs against a backdrop of slow economic growth and indicators of distress in the labor market. The July jobs report revealed only 73,000 new hires, with the preceding three months yielding a mere 106,000 net new positions—a stark contrast to the previous year’s employment gains. GDP growth has stagnated at an annualized rate of 1.75% for the first half of 2025, significantly lower than the levels necessary to address the increasing federal debt. Such muted economic performance further undercuts the justification for current equity valuations, which have ascended largely due to inflated multiples, not driven by robust corporate results.
For individual investors, this status quo is concerning; sky-high stock prices mean they are paying premium prices for profit levels reminiscent of prior market peaks. As the bull market continues its ascent far above underlying economic growth, experienced strategists recommend implementing strategies to weather potential turbulence—encouraging diversification beyond large-cap U.S. stocks and advocating greater exposure to international equities, core fixed income, and alternative investments. While Kelly maintains a measured perspective on future outcomes, noting the bull market’s surprising duration, he emphasizes that seasoned investors should remain vigilant and adaptable. Historical context reveals that from 1955 to 1985, the S&P 500 yielded an average total return of 8.8% annually, inclusive of dividends. Remarkably, in the four decades since, that figure has surged to a compound annual return of 11.6%.
